SA car buyers facing inflation triple whammy

Johannesburg - South African motorists are facing a triple whammy as the country’s recent downgrade to junk status by two major ratings agencies is likely to result in more than just a spike in car prices. Finance and running costs, including insurance, are set to rise too.

This is according to TransUnion, which on Thursday released its Vehicle Price Index for the first quarter of 2017. The VPI report, which examines year-on-year vehicle price inflation in a similar fashion to the CPI for general consumer goods, showed that new vehicle inflation is currently running at 8.8 percent, up from 6.6 percent a year ago. In fact, car prices have hovered above CPI (Consumer Price Inflation) levels for the past five quarters.

However, the worst could still be on the horizon as the vehicle information specialist pointed out that SA’s downgrade to junk status had yet to impact motorists.

“With the possibility of a recession looming, should the rand depreciate to R16-R17 against the dollar, this will have an extremely negative effect on the vehicle index for new cars. Manufacturers may be forced to pass on the higher pricing to consumers, which will result in a contraction of vehicle sales, as more than 70% of vehicles are imported and subject to currency volatility,” TransUnion said.

Importers would no doubt bear the brunt of this, but local manufacturers would also be hard hit. Those with SA factories still import most of their vehicles, although the APDP production incentives that they receive from government might at least soften the blow to some degree. Even those few vehicles that are put together here are vulnerable to currency fluctuations due to the high percentage of imported parts and higher-than-usual wage demands during times of steep inflation.

Running costs to rise too

Furthermore, the cost of owning a vehicle is set to rise, not only through higher fuel prices but also steeper finance payments due to interest rate hikes, and even increased insurance payments.

“Consumers might be faced with increased short-term insurance premiums as a result of increased repair costs based on the fact that 70% of parts are imported and subject to currency volatility,” warned TransUnion’s Derick de Vries.

Given the supply-demand dynamics created by new vehicle prices, used car prices have also risen in recent times, albeit at a much lower rate of 3.7 percent, which is up from 2.2 percent in Q2 2016.

TransUnion’s VPI reports draw data from a basket of passenger vehicles, pulled from the 15 top selling manufacturers.